Estate Planning

The Beneficiary Deed as a Valuable Estate Planning Tool for Mineral Owners

In this time of uncertainty, real property owners, including owners of mineral interests, are feeling an increased responsibility to set their estates in order. Probate proceedings can be expensive and time-consuming for loved ones, so many people are turning to alternative estate planning tools, like revocable trusts,1 to transfer real property outside of probate. Another valuable tool that mineral and surface owners should consider is an instrument called a beneficiary deed in Colorado2 and a transfer on death deed in Wyoming3. The beneficiary or transfer on death deed operates similarly in many states. This estate planning tool can accomplish many of the same goals as a revocable trust, without the more complicated aspects of setting up and administering a trust.

A beneficiary deed is a special type of deed that allows a property owner to distribute real property assets, including mineral interests, upon death without those assets going through probate. By executing a beneficiary deed at any time while living, a property owner can convey title to real property to one or more grantee-beneficiaries upon the death of the owner. Colo. Rev. Stat. § 15-15-404 (2019).

There are several advantages in using a beneficiary deed to transfer real property to intended grantee-beneficiaries. The obvious benefit is that the current owner retains full control and enjoyment of the property. In addition, the beneficiary deed can easily be revoked at any time during the life of the owner. With regard to taxes, the owner-grantor avoids paying a gift tax by transferring title at death, and the value of the property at the owner’s death typically receives a stepped-up basis, minimizing the capital gains the beneficiary must pay4. While the grantee-beneficiary does take title to the real property subject to all encumbrances, like mortgages, deeds of trust and leases, the grantee-beneficiary may disclaim all or any part of the real property and will not be liable for any encumbrances if they do so. Colo. Rev. Stat. § 15-15-407(2) (2019); Colo. Rev. Stat. § 15-15-414 (2019).

Certain legal requirements must be complied with for the beneficiary deed to be effective. The beneficiary deed must contain very particular legal language and must be recorded with the clerk and recorder’s office in the county where the real property mineral interest is located. Colo. Rev. Stat. § 15-15-404 (2019). A certified death certificate, accompanied by a supplemental affidavit, must also be recorded for title to transfer. Colo. Rev. Stat. § 15-15-413 (2019). A beneficiary deed may not be the right tool to convey real property and mineral interests if an owner is planning on qualifying for Medicaid, if there are undefined grantee-beneficiaries, or if estate liabilities exceed assets5. If you are interested in learning whether the beneficiary deed may work for your estate planning needs, please consult a professional to more fully evaluate your individual circumstances.

Tjornehoj & Hack LLC, 2020

  1. Please see our blog post explaining the uses of trusts in estate planning. []
  2. This article relies on the Colorado law regarding beneficiary deeds located at Colo. Rev. Stat. §§ 15-15-404–414 (2019). []
  3. Wyoming law regarding transfer on death deeds, which is similar to Colorado law, is located at Wyo. Stat. Ann. §§ 2-18-101–106 (2019). []
  4. See Practical Considerations in the Use of Colorado Beneficiary Deeds, 44 Colo. Law. 41 (Jan. 2015). []
  5. Id. []